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Full text of "Summary of the budget of the national government of Canada for the fiscal year ending March 31, 1953"

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SUMMARY OF THE BUDGET 

OF THE 

NATIONAL GOVERNMENT OF CANADA 

FOR THE 

FISCAL YEAR ENDING MARCH 31, 1953 

PREPARED BY 

THE STAFF^OF THE JOINT COMMITTEE 
ON INTERNAL REVENUE TAXATION 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
20118 WASHINGTON : 1952 



SUMMARY OF THE [BUDGET OF THE NATIONAL 
GOVERNMENT OF CANADA 



I. SUMMARY STATEMENT 

The Minister of Finance, Mr. Douglas Abbott, presented his annual 
financial statement to the Canadian House of Commons on April 8, 
1952. A summary of his statement appears below: 

(A) TAX AND TAEIFF CHANGES 

1. The increase in 1952 individual income taxes of slightly over 
9 percent, which would have occurred in the absence of any revenue 
legislation this year, is reduced by about a third for 1952 and by about 
two-thirds for 1953 and subsequent years in the proposals contained 
in the financial statement. This statement does not take inta 
account the tax increase provided by the Old-Age Security Act last 
year, which adds 1 percentage point (maximum tax, $30) to the 
individual income tax in 1952 and 2 percentage points (maximum 
tax, $60) for 1953 and subsequent years. It is estimated that the 
changes in the rates will reduce personal income tax revenues about 
$40 million below what they otherwise would be in the fiscal year 
1953 and about $65 million below what they otherwise would be in 
subsequent years. 

2. Other changes in the personal income tax include the doubling of 
the existing maximum limits on the amount of medical expenses that 
may be deducted in computing income subject to tax. Also, in the 
future, medical expenses paid in the taxable year are to be deductible 
irrespective of when they were incurred. 

3. Previously the National Government imposed income taxes oix 
corporations at rates of 17 percent on the first $10,000 of profits, and 
47.6 percent on profits over $10,000. This includes the 2-percent 
corporate income tax collected for the old-age security program. In 
addition, coiporations paid a 5-percent income tax in the eight 
Provinces with which the National Government has tax agreements^ 
and a 7-percent tax in the two remaining Provinces of Ontario and 
Quebec. In the future, except in the case of Ontario and Quebec, 
only the Canadian National Government will collect an income tax 
from corporations, and the rates imposed, including the old-age 
security tax, will be 22 percent on the first $10,000 of profits and 52 
percent on profits over $10,000. The collections from the 5-percent- 
age-point tax increase then will be turned over to the Provinces. In 
the case of corporations in Ontario and Quebec, a 5-percentage-point 
tax credit will be allowed. This action reduces the combined cor- 



2 SUMMARY OF THE BUDGET OF CANADA 

porate-tax rate on income over $10,000 by six-tenths of 1 percentage 
point. Canada does not levy an excess-profits tax and none is pro- 
posed in this year's financial statement. These changes in the cor- 
porate-income-tax rate are expected to decrease national revenues 
available for general expenditures by $12 million in 1953 and by $18 
million in subsequent years. However, the National Government 
also is expected to collect $25 million in 1953 and $35 million in 
subsequent years which will be turned over to the Provinces. 

4. Government corporations competing with private business, 
which have previously been exempt from the corporate income tax, 
effective January 1, 1952, will be liable to this tax in the same manner 
as other corporations. 

5. Electric, gas and steam public utilities are to be given a deduction 
for lax purposes which wiU have the effect of reducing their over-all 
corpoiata income tax rate (excluding the old-age security tax) from 
50 percent to 43 percent. 

6. The allowance now granted for "off property" exploration ex- 
penses incurred in searching for minerals, petroleum or natural gas is 
extended for one additional year. Another year is also added to the 
period during which new mines may qualify for the 3-year exemption 
for new mines. Previous law had permitted qualification for these 
benefits through 1954. 

7. Certain foods and business cost items are to be exempted from 
the 10 percent manufacturers' sales tax. 

8. Substantial reductions are made in the excise tax rates. The 
wide range of consumer items previously taxed at 25 percent (listed 
subsequently in this report) are now taxed at 15 percent; washing 
machines, stoves, and refrigerators which previously were taxed at 
15 percent, are exempt from excise taxation; and the 30 percent tax 
on soft drinks is reduced to 15 percent. Reductions are also made 
in the excise taxes on tobacco. The combined excise duty and tax 
on a standard pack of cigarettes is reduced from 23 cents to 2G cents 
a pack. The excise tax on raw leaf tobacco is reduced by 12 cents a 
pound, making the combined excise tax and duty on such tobacco 
28 cents instead of 40 cents per pound. It is estimated that these 
excise tax changes will reduce revenues by $88 million in 1953 and by 
$97 million in a full year of operation. 

9. Certain revisions are also made in the tariff schedules. Rates on 
plastic items are readjusted, providing both increases and decreases. 
Reductions are provided on such items as window glass, plate glass, 
certain forms of safety glass, and mirrors. Lower rates are provided 
in the case of items which enter into the cost of production of certain 
manufacturing and primary industries. Provision is also made for 
entry free of duty for complete aircraft and engines of types and sizes 
not made in Canada. 

(B) REVENUES AND EXPENDITURES 

1. The provisional figure for total budgetarv expenditures for the 
fiscal year 1952, ending March 31, 1952, is $3,647 million, and the 
provisional figure for revenues is $4,003 million, providing a surplus of 
$356 million. This does not include certain loans and investments, 
which would be included in the United States budget. These amount 
to $175 million on a net basis and would therefore reduce the surplus 



SUMMARY OF THE BUDGET OF CANADA 3 

on this basis to $181 million. As in the United States, old age security 
pension payments are handled by a separate fund and are not included 
in the above totals. On a cash basis, expenditures of the Canadian 
Government for the fiscal year 1952 are estimated at $3,828 million, 
and revenues at $4,218 million, providing a cash surplus of $390 
million. 

2. Expenditures for the fiscal year ending March 31, 1953, are 
estimated at $4,270 million. This is based upon the budgetary con- 
cept of expenditures and excludes loans and investments and also 
$322 million of estimated expenditures for old age security pensions. 
Revenues in the fiscal year 1953, before taking into account the tax 
program proposed in the current financial statement, are estimated 
at $4,395 million. Since the tax changes proposed by Mr. Abbott 
are expected to decrease revenues in the fiscal year 1953 by $116 
million, the anticipated revenue for 1953 is $4,279 million. Before 
the tax proposals this would mean a budgetary surplus of $125 million, 
and after the tax proposals, a surplus of $9 million, or approximately 
a balanced budget. However, if the net balance of loans and invest- 
ments is of the same magnitude as in 1952, in terms of United States 
budgeting concepts, Canada probably will have a deficit approaching 
$200 million. As in the case of expenditures, the Canadian revenue 
estimates do not include receipts to be set aside for the old-age security 
program which are estimated at $235 million for fiscal year 1953. 
The cash budget for 1953 is expected to be approximately in balance. 

II. Economic Background 

Mr. Abbott stated in his financial statement: 

As I have told the House on many past occasions, we can hardly expect to have 
much less inflation than exists in the United States — our economies are too closely 
intermingled and theirs is so much larger — but unless we manage our affairs well 
we could have a great deal more.' 

The views of the Canadian Government on general economic conditions 
in the calendar year 1952 are expressed in the following statement 
which appears in the white paper submitted with the financial state- 
ment: 

The general economic position in the opening months of 1952 is that the in- 
flationary pressures have been brought under control, but that at many points in 
the economy a strong inflationary potential still exists. Any series of adverse 
events which sharply raised the present international tensions could bring about 
a renewal of direct inflationary pressures that might seriously test our economic 
defenses. But at the moment the prospects for 1952 indicate continued high 
levels of employment and general business activity, without any renewal of overt 
inflation, and with most of the increased output occurring in the defense and de- 
fense supporting sections of the economy.^ 

The Canadian budget for the fiscal year ending March 31, 1953, 
was based upon an estimated gross national product of $22.5 billion 
for the calendar year 1952. Since the Canadian gross national product 
was $21.2 billion in the calendar year 1951, this means that a 6 percent 
rise in the income levels was assumed for the calendar year 1952. 
According to the Secretary of the Treasury an estate of $265 billion 
was used as the personal income level for the calendar year 1952 in 

1 House of Commons Debates. Official Report, Tuesday, April S. 1952, Qusen's Printer and Comptroller 
of Stationerv, Ottawa, 1952, pp. 1245-124(1, 

3 The auotation appears in B'ld^et Papers presented by the Honorable D. C. Abbott, M. P., for the 
information of Parliament in connection with the Budget of 1952-53, p. 7. These papers are attached to the 
House of Commons Debates, op. cit. 



4 SUMMARY OF THE BUDGET OF CANADA 

the preparation of the United States' budget for the fiscal year 1953. 
Since the personal income level in the United States was $251 billion 
in the calendar year 1951, this also assumed a rise in incomes of nearly 
6 percent. 

Despite the similarity of economic conditions in the United States 
and Canada, the policies the two countries have followed in combating 
inflation in the past few years have been quite different. The United. 
States has employed direct controls both on wages and on prices and 
has imposed a corporate excess-profits tax. In Canada wage and 
price controls have not been emplo3'ed and no excess-profits tax has 
been imposed. Instead Canada has made greater use of excise taxes 
and has provided an increase in its manufacturers' sales tax to mop 
up excess purchasing power. 

Assuming a repetition of the 1952 figure for net loans and invest- 
ment, the Canadian receipts before the tax changes would have 
equaled about 99 percent of expenditures in the fiscal year 1953, 
while in the United States the prospect is that receipts in the fiscal 
year 1953 will be about 85 percent of expenditures.^ This is an 
important factor in the Canadian optimism about declining inflation- 
ary pressures, and in large measure accounts for the fact that Canada 
is able to reduce tax rates below the level previously planned by pro- 
viding moderate reductions in excise taxes and in individual income 
tax withholding. Basic to this is the fact that Canada has a some- 
what different fiscal problem from that in the United States, since 
her expenditures (including net loans and investments) have increased 
only 66 percent from 1950 to 1953, while her revenues, without taking 
into account the tax proposals made this j^ear, have increased by 
70 percent in the same period. In the United States, on the other 
hand, expenditures have increased 99 percent since 1950, while rev- 
enues have only increased 84 percent in the same period.^ 

III. Receipts and Expenditures 

The actual and estimated budgetary receipts and expenditures as 
shown in the financial statement or in the white paper attached to 
that statement are summarized in table 1 for the fiscal years 1951, 1952, 
and 1953. Canada's fiscal year begins on April 1, 3 months before 
the fiscal year used by the United States. 

3 The expenditure figure used for the United States in the fiscal year 1953 is $80 billion and the receipt 
figure, $68.3 billion. It the 1953 estimates of $85.4 billion in the case of expenditures, and $71 billion in 
the case of receipts, contained in the United States budget presented this last January had been used, the 
above percentage would have been 83 percent instead of 85 percent. 

4 The expenditure and receipt estimates used for the United States in the fiscal year 1953 are as noted in 
footnote No. 3. If the 1953 estimates contained in the United States budget presented this last January 
had been used, the above percentage in the case of expenditures would have been 113 percent and in the case 
Of receipts, 92 percent. 



SUMMARY OF TTTFl BUDGET OF CANADA 5 

Table 1. — Canadian budgetary receipts, expenditures and surplus for the fiscal years 

1951, 1952, and 1953 

[In millions of dollars] 




Actual 


Estimated 




1951 


1952' 


1953 




Before tax 
changes 


After tax 
changes 


Receipts- _ _ 


3, 113 

2,901 

211 


4,003 

3, 647 

356 


4,395 

4,270 

125 


4 279 


Expenditures-- _ _- 


4 270 


Surplus. _. 


9 







1 Based on probable receipts and expenditures as reported in the House of Commons Debates for Apr. 8, 
1052. 



Table 1 indicates that both receipts and expenditures forecast for 
the fiscal year 1953 are above those of 1951 and 1952. The increase 
in revenues forecast for 1953 after taking into account the proposed 
tax reductions amounts to $276 million over those in 1952, The 
primary revenue sources accounting for this increase (excluding old- 
age security taxes) are individual income taxes, which increase by 
$224 million, and corporate income taxes which increase by $136 
million. Excise and sales taxes, on the other hand, are expected to 
bring in $90 million less in revenues in 1953 than in 1952. Individual 
mcome tax collections are expected to mcrease in the fiscal year 1953 
not only because of somewhat higher income levels, but also because 
the rates applicable to individuals for the calendar year 1952 will be 
somewhat above those applicable for the calendar year 1951. Sim- 
ilarly, corporate income tax collections are expected to be higher in 
the fiscal year 1953 not only because of the somewhat higher income 
levels, but also because tax increases for corporations provided by 
prior law are not fully reflected in tax collections until the fiscal year 
1953. The decrease in excise- and sales-tax collections is attributable 
almost entirely to the tax reductions to be made as a result of the 
proposals presented in the financial statement. 

The surplus for 1953 of $125 million before the tax changes are 
taken into account is $231 million below that expected for the fiscal 
year 1952, and the surplus for 1953 of $9 milKon after the tax changes 
are taken into account is $347 million below that expected for 1952. 
In this respect the Finance Minister indicated: 

What I am really doing, of course, is budgeting for a balanced budget, since 
the $9 million surplus is less than one quarter of 1 percent of revenues and less 
than the normal mathematical margin of error in the estimates themselves. ^ 

As it is in the United States the old-age security fund in Canada is 
handled outside of the regular budget. Thus, as in the United States, 
expenditures and receipts for this program are not reflected in the 
expenditure, receipts, or surplus totals shown in table 1. However, in 
another respect the budgetary procedures followed by Canada differ 
from those followed by the Federal Government of the United States. 
In Canada loans and investments, on which recovery eventually is 

' House of Commons Debates, op. cit. p. 1260. 



% 



SUMMARY OF THE BUDGET OF CANADA 



anticipated, do not appear as expenditures at the time the loans are 
made, or receipts at the time the loans or investments are repaid. 
The United States, on the other hand, does consider these loans and 
investments in most cases to be expenditures at the time made and 
receipts at the time recovered. In. Canada these loans and invest- 
ments include transactions with National Government agencies and 
corporations, with the Provincial and municipal governments, and 
with foreign countries, particularly the United Kingdom. In 1952 
these loans and investments would have had the effect of decreasing 
the Government surplus by $175 million had they been treated as 
budgetary items. Sufficient detail is not available to determine the 
estimated net balance of these loans and investments for the fiscal 
year 1953. 

In determining the effect of the Government's transactions on other 
segments of the economy and also in determining the Government's 
borrowing requirements, the "cash accounts," or cash budget as it 
is known in the United States, are probably more significant than the 
ordinary budget. Table 2 compares the cash budgets of the Govern- 
ment of Canada and the Federal Government of the United States 
for the fiscal years 1951 and 1952. This table indicates that Canada 
had a surplus (small relative to its gross national product) in both 
1951 and 1952. The United States had a somewhat larger cash sur- 
plus, relative to its gross national product, in 1951, but a deficit is 
estimated in its cash budget in 1952. In both cases the 1952 figure is 
an estimate, and in the case of the United States, the estimate for 1952, 
which was made by the President last January, shows a larger cash 
deficit than now appears probable. In its estimates of Federal re- 
ceipts for the fiscal year 1952, the staff of the Joint Committee on 
Internal Revenue Taxation arrived at a conventional budget deficit 
of $5.7 billion for the fiscal year 1952, or about $2.5 billion below that 
shown in January for the 1952 conventional budget. Thus, it now 
appears probable that in the fiscal year 1952 the deficit in the United 
States cash budget will be something like $1.5 billion instead of the 
$4.0 billion shown in table 2. This is the equivalent of approximately 
one-half of 1 percent of the gross national product of the United States 
for the calendar year 1951. 

Table 2. — Comparison of the cash budgets of the Government of Canada and the 
Federal Government of the United States for the fiscal years 1961 and 1952 

[In millions of dollars] 





Canada 


United States 




Actual 
1951 


Estimated 
1952 


Actual 
1951 


Estimated 
1952 


Cash receipts 


3,212 
3,042 


4,218 
3,828 


53, 400 

45, 807 


68, 597 


Cash disbursements - - 


72, 625 






Cash surplus ( + ) or deficit ( — ) 

Cash surplus ( + ) or deficit ( — ) as a per- 
cent of gross national product in 1951 __ 


+ 171 
0.8 


+ 390 
1.8 


+ 7,593 
2. 3 


-4,027 
-1. 2 



SUMMARY OF THE BUDGET OF CANADA 7 

The Minister of Finance presents no cash budget estimates for 
Canada for the fiscal year 1953. However, he does make the following 
statement: 

My general conclusion is that unless there is a substantial change in the amounts 
advanced to the exchange fund our over-all cash surplus will correspond fau'ly 
closely with our budget surplus. ^ 

In view of the fact that the Canadian estimates show the conventional 
budget to be approximately in balance, it appears that a balanced 
cash budget is anticipated for the fiscal year 1953. In the United 
States the January budget message estimated that for the fiscal year 
1953 the United States would have a cash deficit of approximately 
$10.4 billion. However, as in the case of the 1952 estimates, more 
recent events suggest that this deficit is probably overstated. The 
staff of the Joint Committee on Internal Revenue Taxation has 
estimated the ordinary budget deficit for 1953 at $11.7 biUion instead 
of the $14.4 billion forecast in the January budget. This suggests a 
cash deficit of approximately $7.7 billion for the fiscal year 1953, 
instead of $10.4 billion. 

Table 3 compares the budgetary expenditures of the Govern- 
ment of Canada and those of the Federal Government of the United 
States by major functions. This table, in the case of Canada, was 
prepared by the staff of the Joint Committee on Internal Revenue 
Taxation from data in the financial statement, in the white papers 
attached to the financial statement, and from "Canada, Estimates 
for the fiscal year ending March 31, 1953."^ Since a considerable 
amount of judgment is involved in the classification process, the 
breakdown shown must be regarded as an approximation. Moreover, 
the only detailed information available for estimated Canadian 
expenditures for 1953 was released some time prior to the presentation 
of the financial statement and the estimate of total expenditures is 
revised in the statement. This made it necessary in the case of these 
1953 expenditures to add a balancing item which could not be dis- 
tributed by function. In the case of United States expenditure esti- 
mates also, it should be recognized that information available since the 
issuance of these data last January suggest that total expenditures are 
likely to be nearly $4 billion below those shown for 1952, and over 
$5 billion below those shown for 1953, with much of the reduction 
in both cases occurring in the military services category. Despite 
these limitations, it is believed that this table presents at least a rough 
basis for comparing Canadian and United States expenditures by the 
various major functional categories. 

6 House of Commons Debates, op. cit., p. 1251. 

' Queens' Printer and Comptroller of Stationery, Ottawa, 1952. 



20118—52- 



SUMMARY OF THE BUDGET OF CANADA 









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SUMMARY OF THE BUDGET OF CANADA 



9 



Table 3-A shows for 1951 and 1952 the same distribution of 
Canadian expenditures by major functions but includes loans and 
investments. 

These tables indicate that in both Canada and United States mili- 
tary services represent by far the biggest expenditure item. In table 
3 these expenditures are shown as accounting for 35 percent of the 
Government of Canada's expenditures in 1952 and 40 percent in 
1953, while in the United States the figures shown are 56 percent and 
60 percent, respectively. However, as previously indicated, the 
figures for United States are probably overstated in this category 
and it is quite likely that the military service expenditures in both 
1952 and 1953 in the United States account for as much as 2 percent 
less of the total budgetar}^ expenditures than is shown in table 3. 

Table 3-A. — Expenditures of the G overnment of Canada by major functions, including 
the effects of the annual changes in active loans and investments 

[Amounts in millions of dollars] 





Actual, 1951 


Estimated, 1952 


Function 










Amount 


Percent 


Amoimt 


Percent 


Military services 


572 


19. 2 


1,261 


33.0 


International security and foreign rela- 










tions 


174 


5.8 


104 


2.7 


Finance, commerce, and industrj'^ 


27 


. 9 


57 


1.5 


Transportation and communication. 


238 


8.0 


391 


10. 2 


Natural resources 


58 


1. 9 


68 


1.8 


Agriculture 


147 


4.9 


68 


1. 8 


Labor 


63 


2. 1 


65 


1.7 


Housing and communitv development 


83 


2.8 


82 


2. 1 


Education and general research 


8 


.3 


18 


.5 


Social security, welfare, and health 


476 


16.0 


515 


13.5 


Veterans' services and benefits 


248 
324 


8.3 
10. 9 


261 
369 


6. 8 


General government _ 


9. 7 


Interest 


439 


14.7 


441 


11.5 


Grants, taxes, and subsidies to Provinces.. 


121 


4. 1 


123 


3.2 


Total 


2,977 


100.0 


3,823 


100.0 



Note.— Figures are rounded and may not add to totals. 

In Canada the nonmilitary service categories shown in table 3 as 
accounting for 5 percent or more of expenditures in 1953 are interest, 
10.2 percent; social securit}'', welfare, and health, 9.9 percent; inter- 
national securit}^ and foreign relations, 8.5 percent; transportation 
and communication, 6.4 percent; veterans' services and benefits, 6.2 
percent; and general government, 5.4 percent. In the United States 
the nonmilitary service categories accounting for about 5 percent or 
more of total expenditures in 1.953 are international security and 
foreign relations, 12.7 percent; interest, 7.3 percent; and veterans' 
services and benefits, 4.9 percent. 

In the calendar year 1951 the Canadian National Government's 
expenditures, including subsidies to Provincial and municipal govern- 
ments, represented 14.4 percent of her gross national product in 1951. 
The comparable percentage in the case of the Federal Government of 
the United States is 17.9 percent. Thus, at the national level alone, 



10 SUMMARY OF THE BUDGET OF CANADA 

Government expenditures in United States account for a larger per- 
centage of gross national product than is true in the case of Canada. 
However, this is largely compensated for by larger Provincial and 
municipal expenditures in Canada. In Canada Provincial and munic- 
ipal expenditures in 1951 amounted to 9 percent of Canada's gross 
national product, while in the United States, State and local expendi- 
tures in 1951 amounted to only 6.5 percent of our gross national 
product. Thus, over-all Government expenditures in Canada and 
United States represent very nearly the same percentage of gross 
national product, 23.4 percent in Canada and 24.4 percent in the 
United States in 1951. 

The net purchase of goods and services by the two governments 
represents another basis for comparison of Government expenditures. 
This omits those expenditures where a government is acting only as an 
ragent transferring funds from one group of persons to another, and 
thus excludes expenditures which do not involve the use of resources 
by government. On this basis expenditures by the United States 
governments, including State and local governments, represented 
about 19 percent of the gross national product in 1951. National, 
Provincial, and municipal government purchases of goods and services 
in Canada in 1951 represented 14.7 percent of the gross national 
product. Thus, the main difference in the total government budgets 
in the two countries lies in the size of the transfer and other payments 
apart from those for goods and services, 5.2 percent of the gross na- 
tional product in the United States and 8.7 percent in Canada. As a 
result, the effect of government expenditures on tax policies should be 
about the same in the two countries, although the United States 
governments divert a larger volume of goods aiid services from the 
private segment of the economy. 

Table 4 shows the distribution of revenue by major sources for the 
Government of Canada and also for the Federal Government of the 
United States for the fiscal years 1951, 1952, and 1953. This table 
indicates that Canada places a greater reliance on sales and excise 
taxes than is true in the United States, and less reliance on the indi- 
vidual and corporate income taxes than does the United States. 
However, over the 3-year period Canada has increased the proportion 
of her revenue which is derived from the individual and corporate 
income taxes. 



SUMMARY OF THE BUDGET OF CANADA 



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m 



SUMMARY OF THE BUDGET OF CANADA 

IV. Budget Tax Changes 



The revenue effects of the tax proposals presented in the financial 
statement are summarized in table 5. 

Table 5. — Estimated revenue reduction resulting from proposed tax changes 

[In millions of dollars] 



Fiscal year 
1953 



Full year 
effect 



Personal income tax, revision of rate structure 

Corporation income tax: 

(a) Decrease of 0.6 percent in tax rate 

(b) Increase from incorporation of 5 percent pro- 

vincial corporate tax into the Federal tax 

structure 

Excise and sales taxes: 

(a) Rate on articles presently taxed at 25 percent 

reduced to 15 percent 

(6) Rate on soft drinks reduced from 30 percent to 
1 5 per cent 

(c) Tax of 15 percent on refrigerators, stoves, and 

washing machines repealed 

(d) Rate, on cigarettes reduced from 23 cents a pack 

to 20 cents a pack ^ 

(e) Other miscellaneous changes 

Total excise and sales taxes 

Total 



40 
12 

' +25 

58 

10 

10 

10 
1 



65 
18 

+ 35 

64 

11 

11 

11 
1 



89 



98 



3 116 



'146 



1 This increase is to be reflected in a corresponding decrease of the corporate tax imposed by the Provincial 
governments. 

2 This includes the excise duty on cigarettes of 12 cents per pack. 

3 The total reduction excluding the effect of the increase in corporate taxes offset by a decrease in Provincial 
corporate income-tas receipts is $1-11 million in 1952-53 and $181 million in a full year of operation. 

The revenue loss shown in the above table for 1953 is a loss only 
in terms of the revenue which it is estimated would otherwise have 
been received in 1953. The estimated tax revenue for 1953 after the 
tax reductions is still $290 million above the probable tax revenue 
for 1952. 

Mr. Abbott gave the following general explanation as to the tax 
policy to be followed by the Canadian Government this year: 

A year ago, in the face of an ex-tremely uncertain situation, I put forward what 
I described as a provisional tax program. This was done in the expectation that 
the outlook at home and abroad would become clearer. While the future is not 
free of uncertainty, the prospects are now sufficiently clear to justify moving 
toward a more stable pattern in our tax structure. The main essentials in a tax 
structure necessary to carry the civilian and the defense programs are that it 
should be adequate, efficient, fair, and reasonably stable. To be adequate it is 
clear that I cannot offer any large net reductions in taxes this year. To be effi- 
cient and to be as fair as possible I shall be proposing quite a number of modifica- 
tions, which on balance will provide some net reduction in tax revenues, though 
in ceitain instances adjustments in consumption may partly offset the adjustments 
in the tax rates. These modifications in tax rates, and some rearrangements 
in the grouping of tax commodities, wiU I beUeve put our tax structure into an 
orderly balance and, in the absence of substantial changes in the pattern of 
expenditure, provide some promise of reasonable stability in our tax structure 
for the immediate future.^ 



'House of Commons Debates, op. cit., p. 1252. 



SUMMARY OF THE BUDGET OF CANADA 13 

(A) INDIVIDUAL INCOME TAXES 

In the absence of any changes by Parliament in the indiv^idual in- 
come tax this year, individuals subject to these taxes would have 
found their tax liabilities considerably higher in 1952 than in 1951. 
Last year individual income taxes were increased by the addition of a 
defense surtax equal to a flat percentage increase in the amount of tax 
due under the then existing law. The increase provided at that time 
for 1951 was 10 percent and the increase to be effective in the calendar 
year 1952 was to be 20 percent (over 1950 taxes). This would have 
increased everyone's taxes by a little over 9 percent m 1952 over 1951. 
In addition, Canada passed an old-age securitj^ act last year somewhat 
sunUar to our old-age and smwivors insurance program, which is 
financed in part from an addition to the individual income tax. In 
1952 the additional tax as the result of the old-age security program 
is 1 percent of taxable income, but not in excess of $30. In subsequent 
years it is to be 2 percent of taxable income with a maximum of $60. 
In the absence of any tax legislation this year, the Canadian individual 
income taxpayer in the bottom bracket (excluding old-age security 
taxes) would have had his tax rate increased from 16.5 percentage 
points to 18 percentage points, an increase of slightly over 9 percent. 
The Canadian individual income taxpaj^er with income in the top 
bracket would have had the rate on such income increased from 88 
percentage points to 96 percentage points, also an increase of slightly 
over 9 percent. 

Mr. Abbott in his financial statement indicates that the Canadian 
Government will substitute an entirely new rate schedule for the old 
schedule, including the 20 percent defense surcharge. The new 
schedule, when fully effective, is expected to reduce the revenue 
which otherwise would be received by about 6 percent. However, 
this new rate schedule is not to be fully effective untO the beginning 
of the calendar year 1953. A temporary tax Schedule is to be ap- 
plicable in the calendar year 1952 which incorporates approximately 
one-half of the reductions to be provided in 1953. Thus, the tax 
reduction in 1952 is to be approximately 3 percent based upon what 
the tax would otherwise have been in 1952. For 1952, however, 
this is still 1 percentage point above the 1951 rate (excluding the 
old-age secm-ity tax) in the bottom tax bracket, and 3 percentage 
points above the 1951 rate in the top bracket. For 1953 the regular 
individual income tax rates will be decreased somewhat further. As 
a result, the tax in 1953 in the bottom bracket (excluding the old-age 
security tax) will be only a half percentage point above the 1951 
rate, while the top bracket rate will be 2 percentage points below 
that effective in 1951. Table 6 shows the 1951 individual income 
bracket rates together with the rates which would have been in effect 
in 1952 in the absence of any tax decrease, and the new 1952 and 1953 
rates. These rates are shown both excluding and including the old-age 
secm-ity tax. 



14 



SUMMARY OF THE BUDGET OF CANADA 



Table 6. — Canadian individual income tax rates for the calendar years 1951-53 
under existing law and under financial statement proposals 



Taxable income 



Old 1952 rates i 



Exclud- 
ing 
old-age 
security 
tax 



Total, 
includ- 
ing 
old-age 
security- 
tax 2 



New 1952 rates '• 



Exclud- 
ing 
old-age 
security 
tax 



Total, 
includ- 
ing 

old-age 

security 

tax 2 



New 1953 rates ' 



Exclud- 
ing 
old-age 
security 



Total, 
includ- 
ing 
old-age 
security 
tsixs 



to $1,000-- 

$1,000 to $2,000 - 

$2,000 to $3,000 

$3,000 to $4,000 

$4,000 to $6,000 

$6,000 to $8,000 

$8,000 to $10,000 

$10,000 to $12,000___ 
,000 to $15,000^-- 
,000 to $25,000--- 
,000 to $35,000- _- 
,000 to $40,000--- 
,000 to $50,000- -_ 
,000 to $60,000- __ 
,000 to $75,000- __ 
,000 to $90,000--- 
,000 to $100,000-- 
$100,000 to $125,000- 
$125,000 to $150,000- 
$150,000 to $225,000- 
$225,000 to $250,000- 
$250,000 to $400,000. 
$400,000 and over-_- 



$12 
$15 
$25 
$35 
$40 
$50 
$60 
$75 
$90 



Percent 
16. 5 
18. 7 
20. 9 
20. 9 
24. 2 
28! 6 
33. 
38. 5 
44. 
49. 5 
55. 
55. 
60. 5 
60. 5 
66. 
66. 
71. 5 
71. 5 
77. 
77. 
82. 5 
82.5 
88. 



Percent 
18.0 
20.4 
22. 8 
22. 8 
26. 4 
31. 2 
36. 
42. 
48. 
54. 
60. 
60. 
66. 
66. 
72. 
72. 
78. 
78. 
84. 
84. 
90. 
90.0 
96.0 



Percent 
19. 

21. 4 
23. 8 

22. 8 
26. 4 
31. 2 
36.0 
42. 
48. 
54. 
60. 
60. 
66. 
66. 
72. 
72. 
78. 
78. 
84. 
84. 
90. 
90.0 
96. 



Percent 
17. 5 
19. 7 
22. 4 
22. 4 
25. 7 
30. 6 
35. 5 
41. 
46. 5 
52. 
57. 5 
60. 
63.0 
65. 5 
68. 5 
71. 
74. 
76. 5 
79. 5 
82. 
85.0 
88. 
91. 



Percent 

18. 5 
20. 7 
23.4 
22. 4 
25. 7 
30. 6 
35. 5 
41. 
46. 5 
52. 
57. 5 
60. 
63. 
65. 5 
68. 5 
71. 
74.0 
76. 5 
79. 5 
82. 
85. 
88. 
91. 



Percent 
17. 
19. 
22. 
22. 
25. 
30. 
35.0 
40.0 
45. 
50. 
55. 
60. 
60.0 
65. 
65. 
70.0 
70. 
75. 
75. 
80. 
80. 
86.0 
86. 



Percent 
19. 

21. 

24. 

22. 

25. 
30. 
35. 
40. 
45. 
50. 
55. 
60. 
60. 
65. 
65. 
70. 
70. 
75. 
75. 
80. 
80. 
86. 
86. 



1 Rates shown are for earned income. 

8 The old-age security tax is 1 percent in 1952, and 2 percent in 1953, on the first ! 



5,000 of taxable income. 



Under prior law Canada imposed a 4-percent flat-rate tax on invest- 
ment income which, in general, applies to income other than salaries 
and wages, retirement income, or pensions. The first $2,400 of such 
income is exempt, or if the taxpayer's allowance for married status, 
dependents, etc., is greater than $2,400, he may deduct the greater 
amount. The 20-percent defense surtax was to apply to this 4-percent 
tax, as well as to the other income-tax rates.^ Thus, under prior law 
the tax rate which would have applied to investment income in 1952 
was really 4.8 percent. In view of the fact that the 20-percent defense 
tax is repealed, this tax rate reverts to a flat 4 percent. 

Certain changes were also made in the medical-expense deduction. 
The maximum medical-expense deduction which can be taken by a 
single person was increased from $750 to $1,500; that for a married 
couple from $1,000 to $2,000; and that for dependents, from $250 
to $500, although not more than $2,000 is to be deductible on any one 
return, or by a husband and wife although filing separate returns. 
Also, the medical-expense deduction is to be allowed even though 
liability for the payment was incurred in a different year from that in 
which the payment was made. Mr. Abbott also indicated that 
Canada would continue the policy of allowing the deduction only of 
medical expenses in excess of 4 percent of income even though the 

9 Perry, J. Harvey, Taxation in Canada, sponsoredSby the Canadian Tax Foundation, University of 
Toronto Press (1951), p. 50. 



SUMMARY OF THE BUDGET OF CANADA 15 

House of Commons had previously passed a special resolution request- 
ing that all medical expenses be deductible. 

Mr. Abbott gave the following explanation of the proposal raising 
the maximum amounts of medical expenses which may be deducted: 

The existing maximum limits on the amount of medical expenses that may be 
deducted were established some time ago and there is evidence that these limits 
are imposing undue hardship in man}' instances of prolonged or serious illness^ 
especially in cases where certain new and more expensive kinds of treatment are 
required. 1° 

The Finance Minister also gave the following explanation of why he 
was not following the suggestion that all medical expenses be made 
deductible : 

I gave most careful consideration to the suggestion contained in the resolution 
passed by this house that the provisions of the law limiting the deductible medical 
expenses to those in excess of 4 percent of income should be removed. However, 
I feel strongly that the normal personal and living expenses of a taxpayer should 
never be deductible from income for taxation purposes. The requirement that 
only medical expenses in excess of 4 percent of income are deductible will be re- 
tained, therefore, as a means of limiting, and I think properly so, the application 
of this provision to medical expenses of an unusual degree in accordance with the 
original purpose." 

The Federal Government of the United States allows the deduction 
of medical expenses only when they are in excess of 5 percent of ad- 
justed gross incom-e. The maximum medical expense deduction that 
may be taken on a Federal United States income tax retmn is $1,250 
per person claimed as an exemption on the tax return, with a maxi- 
mum of $5,000 in the case of a joint return, or $2,500 in the case 
of other returns. 

Certain other changes are also to be made in Canada's income tax. 
These include changes in the special tax system provided for the 
Armed Forces, the allowance of a deduction for payments under 
"terminal funding" pension plans, the introduction of greater flexi- 
bility in provisions governing the deductibility' of employers' contri- 
butions with respect to employees' past services in the case of pension 
plans, and other minor technical amendments. 

The changes in the individual income tax, primarily the rate changes, 
are expected to reduce revenues b}^ $40 million in the fiscal year 
ending March 31, 1953, and by $65 million in a full year of operation. 
Thus, the forecast of revenues from individual income taxes for the 
fiscal year 1953 (excluding old-age securitv taxes) is reduced from 
$1,300^ million to $1,260 million. 

Table 7 compares the individual income tax burdens in Canada 
under existing law with the proposals for the calendar years 1952 
and 1953. This table shows the tax burdens imposed on single per- 
sons and on married couples with two children both assuming the 
children are eligible for family allowances and that they are not 
eligible. These allowances amount to approximately $72 per year 
per child, but, in those cases where they are granted, the dependency 
allowance under the income tax is reduced from the $400 otherwise 
allowable to $150. This table does not take into account the special 
income tax of 1 percent in 1952 (maximum $30) and 2 percent in 
1953 (maximum $60) to be set aside for the old-age security plan. 

'0 House of Commons Debates, op. clt., p. 1255. 
11 Ibid., p. 1255. 

20118—52 3 



16 



SUMMARY OF THE BUDGET OF CANADA 



Table 7. — Comparison of individual income-tax burdens imposed by the Government 
of Canada (excluding old-age-security tax) under existing law and under the pro- 
posals for 1952 and 1953 ^ 



SINGLE PERSON NO DEPENDENTS 





Amount of tax 


Tax changes under proposals 


Net income 2 
(after deduc- 
tions but before 
exemptions) 


Existing law for— 


Proposals for — 


Percentage in- 
crease (+) or 

decrease (— ) in 
proposed 1952 

tax over existing 
tax for — 


Percentage in- 
crease (+) or 

decrease (— ) in 
proposed 1953 

tax over existing 
tax for— 




1951 


1952 


1952 


1953 


1951 


1952 


1951 


1952 


$1,000 


















$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000 

$15,000 

$20,000 

$25,000 

$50,000 

$100,000 

$500,000 

$1,000,000_. 


$165 

352 

561 

770 

1,540 

2, 156 

4, 136 

6,556 

9,031 

23, 995 

59, 085 

403, 770 

865, 770 


$180 

384 

612 

840 

1, 680 

2,352 

4,512 

7, 152 

9,852 

26, 177 

64, 457 

440, 477 

944, 477 


$175 

372 
596 
820 

1, 640 

2, 301 
4, 406 
6,951 
9,551 

25, 195 

61, 960 

422, 540 

897, 540 


$170 

360 

580 

800 

1,600 

2, 250 

4,300 

6,750 

9,250 

24, 354 

60, 004 

408, 344 

858, 344 


+ 6. 1 
+ 5.7 
+ 6. 2 
+ 6.5 
+ 6. 5 
+ 6. 7 
+ 6. 5 
+ 6.0 
+ 5. 8 
+ 5.0 
+ 4.9 
+ 4. 6 
+ 3. 7 


-2.8 
-3. 1 
-2.6 
-2.4 
-2.4 
-2. 2 
-2.3 
-2. 8 
-3. 1 
-3. 8 
-3.9 
-4. 1 
-5. 


+ 3.0 
+ 2.3 

+ 3.4 
+ 3.9 
+ 3.9 
+ 4.4 
+ 4. 
+ 3.0 
+ 2.4 
+ 1.5 
+ 1.6 
+ 1. 1 
-. 9 


-5.6 
-6.3 
-5.2 
-4.8 
-4. 8 
-4.3 
-4.7 
-5. 6 
-6. 1 
-7. 
-6. 9 
-7.3 
-9. 1 



MAERIED COUPLE, 2 DEPENDENTS OF FAMILY ALLOWANCE AGE ^ 



$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000 -- 
$15,000 -- 
$20,000 _. 
$25,000 _- 
$50,000 __ 
$100,000- _ 
$500,000- _ 
$1,000,000 



-$144 




-28 




152 




354 


1, 


037 


1, 


596 


3, 


420 


5, 


769 


8, 


244 


23, 


065 


58, 


012 


402, 


482 


864, 


482 



-$144 

-18 

179 

400 

1, 145 

1,754 

3,744 

6,306 

9,006 

25, 175 

63, 299 

439, 085 

943, 085 



-$144 

-21 

169 

385 

1, 113 

1,710 

3,658 

6, 131 

8, 731 

24, 232 

60, 854 

421, 213 

896, 213 



-$144 








-25 


+ 25.0 


-16.7 


+ 10.7 


159 


+ 11.2 


-5. 6 


+ 4. 6 


370 


+ 8.8 


-3.8 


+ 4.5 


1,081 


+ 7.3 


-2. 8 


+ 4. 2 


1,666 


+ 7. 1 


-2. 5 


+ 4.4 


3,571 


+ 7.0 


-2.3 


+ 4.4 


5,956 


+ 6.3 


-2. 8 


+ 3.2 


8,456 


+ 5. 9 


-3. 1 


+ 2. 6 


23, 430 


+ 5. 1 


-3.7 


+ 1.6 


58, 950 


+ 4. 9 


-3.9 


+ 1.6 


407, 082 


+ 4.7 


-4. 1 


+ 1. 1 


857, 082 


+ 3. 7 


-5.0 


-. 9 



-38. 9 
-11. 2 

-7. 

-5. 

-5. 

-4. 

-5. 

-6. 

-6. 

-6. 9 

-7.3 

-9. 1 



MARRIED 


COUPLE, 2 


DEPENDENTS NOT 


ELIGIBLE 


FOR FAMILY ALLOWANCE 


$2,000 


















$3,000 


$33 


$36 


$35 


$34 


+ 6. 1 


-2. 8 


+ 3.0 


-5. 6 


$4,000 


202 


221 


214 


208 


+ 5. 9 


-3. 2 


+ 3.0 


-5.9 


$5,000 


394 


430 


417 


404 


+ 5. 8 


-3.0 


+ 2. 5 


-6.0 


$8,000 


1,060 


1, 157 


1, 128 


1, 100 


+ 6. 4 


-2. 5 


+ 3. 8 


-4.9 


$10,000 


1,597 


1,742 


1,701 


1, 660 


+ 6. 5 


-2. 4 


+ 3. 9 


-4.7 


$15,000 


3,344 


3, 648 


3,569 


3,490 


+ 6.7 


-2. 2 


+ 4. 4 


-4.3 


$20,000 


5,665 


6, 180 


6,015 


5,850 


+ 6. 2 


-2.7 


+ 3.3 


-5.3 


$25,000 


8, 140 


8,880 


8,615 


8,350 


+ 5.8 


-3.0 


+ 2. 6 


-6.0 


$50,000 


22, 889 


24, 970 


24, 045 


23, 258 


+ 5. 1 


-3.7 


+ 1.6 


-6.9 


$100,000 


57, 781 


63, 034 


60, 612 


58, 728 


+ 4. 9 


-3. 8 


+ 1.6 


-6.8 


$500,000 


402, 169 


438, 730 


420, 886 


406, 780 


+ 4.7 


-4. 1 


+ 1.1 


-7.3 


$1,000,000-- 


864, 169 


942, 730 


895, 886 


856, 780 


+ 3.7 


-5.0 


-. 9 


-9. 1 



1 In Canadian dollars which differ only slightly from United States dollars. 

2 Assumes all income up to $30,000 is earned, and income over $30,000 is investment income. No account 
has been taken of the 10 percent credit on dividends received from Canadian corporations. 

3 Takes into account family allowance of $72 per year for each child under 16 years of age. Minus dollar 
.amounts indicate that the family allowances exceed the income tax by the amounts shown. 



SUMMARY OF THE BUDGET OF CANADA 17 

Table 8 compares the effective rates of individual income tax im- 
posed by the National Government of Canada under existing law and 
under the proposals for 1952 and 1953 with those presently imposed 
by the Federal Government of the United States. As in the case of 
table 7, this table shows effective rates both for those eligible and not 
eligible for family allowances. The old-age-security tax is omitted 
from the effective rates shown for Canada since the social-security 
payroll taxes could not be included for United States in a table of 
this type. An examination of this table reveals that for single persons 
both the old and new Canadian effective tax rates in the case of indi- 
viduals with incomes of $100,000 or less is always lower than the effec- 
tive tax imposed by the Federal Government of the United States and 
above $100,000 the tax rates which will be in effect in 1953 are lower 
than those presently imposed by the Federal Government of the United 
States. The 1953 Canadian effective rate of tax for a single person 
with a net income of $2,000 is 7 percentage points below that imposed 
in the United States. The difference for succeeding income levels 
decreases up to an income level of $15,000 ; above $15,000 the difference 
increases, reaching 9.7 percentage points at an income level of $100,000. 
Above $100,000 the difference again narrows. 



18 



SUMMARY OF THE BUDGET OF CANADA 



Table 8. — Comparison of effective rates of individual income tax (excluding old-age 
security tax ^) of the Government of Canada under existing law for 1952 and under 
the budget proposals for 1952 and 1953 with those presently imposed by the Fed- 
eral Government in the United States 

SINGLE PERSON— NO DEPENDENTS 



Net income (after deductions 
but before exemptions) J 



$600 

$800 

$1,000 

$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000__-. 
$15,000--.. 
$20,000-_-. 
$25,000_-_. 
$50,000_--. 
$100,000.-. 
$500,000-. 
$1,000,000. 



National Government of Canada 



Existing law 



Percent 



Budget proposals 



Percent 



1953 



Percent 



Federal Govern- 
ment of United 
States existing 
law 



Percent 



9.0 
12.8 

15. 3 

16. 8 
21. 
23. 5 
30. 1 
35.8 
39.4 
52. 4 
64. 5 
88. 1 
94.4 



12. 4 
14. 9 
16.4 
20. 5 
23.0 
29. 4 
34. 8 
38. 2 
50.4 
62.0 
84. 5 
89. 8 



8. 5 
12. 
14. 5 
16.0 
20. 
22. 5 
28.7 
33. 8 
37.0 
48.7 
60. 
81. 7 
85. 8 



5. a 

8.9 
15.5 
18. 
19. 



1 
7 

21.0 
24.9 
27.3 
33. 1 
38.8 
43.8 
56.9 
69. 7 
87. 2 
88.0 



MARRIED COUPLE, 2 DEPENDENTS OF FAMILY ALLOWANCE AGE* 



$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000_.-. 
$15,000__-. 
$20,000-_-. 
$25,000_--. 
$50,000--. 
$100,000--. 
$500,000--. 
$1,000,000- 




4.4 
8. 9 
11. 5 
16.0 
17. 7 
21. 6 
25.0 
28.0 
42.2 
56.0 
82. 2 
87. 1 



MARRIED COUPLE, 2 DEPENDENTS (NOT ELIGIBLE FOR FAMILY ALLOWANCE) 



$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000--. 
$15,000---. 
$20,000--. 
$25,000-.-. 
$50,000--.. 
$100,000-.. 
$500,000-.. 
$1,000,000. 



1. 2 
5. 5 
8. 6 
14. 5 
17. 4 
24. 3 
30. 9 
35. 5 
49. 9 
63.0 
87.7 
94. 3 



1.2 
5. 4 
8.3 
14. 1 
17.0 
23. 8 
30. 1 
34. 5 



48. 
60. 

84. 



89. 6 



1. 1 
5.2 

8. 1 
13. 8 
16. 6 
23. 3 
29. 3 
33. 4 
46. 5 
58. 7 
81. 4 
85. 7 



4.4 
8.9 
11.5 
16.0 
17.7 
21. 6 
25. 
28.0 
42. 2 
56.0 
82. 2 
87. 1 



1 The old-age security tax in Canada in 1952 is 1 percent with a maximum of $30, and in 1953 is 2 percent 
with a maximum of $60. 

s Assumes all income up to $30,000 is earned and income over $30,000 Is investment income. No account 
has been taken of the 10-percent credit on dividends received from Canadian corporations. 

3 Takes into account the maximum effective rate limitation of 88 percent. 

* Takes into account family allowance of $72 per year for each child imder 16 years of age. 

' Negative effective rates. The family allowances exceed the income tax by the amounts shown on table 7^ 



SUMMARY OF THE BUDGET OF CANADA 19 

For married couples with children both the old and the new Canadian 
effective tax rates are above those imposed in United States beginning 
at an income level betM^een $10,000 and $15,000, and extending up 
to an income level approaching $100,000. This is true irrespective 
of whether the dependents in Canada are of family-allowance age or 
not. Above $100,000 the old rates as well as the new rates for 1952 
in Canada are above those presently imposed by the United States. 
The fact that effective rates for married couples in Canada are gen- 
erally above the rates imposed on married couples in the United States, 
while the reverse is true in the case of single individuals, can be 
accounted for by the income-splitting provision in the United States 
tax laws, which Canada does not have. Canada's proposed rate for 
married couples with two children in 1953 is about hji percentage 
points above that imposed in the United States at an income level of 
$25,000. This is the maximum percentage point difference between 
the two rate structures for the income levels shown and is the point 
at which income splitting provides the maximum percentage differ- 
ential under United States tax laws. 

Table 9 compares the proposed marginal rates of individual income 
tax imposed by the National Government of Canada for 1953 with 
those presently imposed by the Federal Government of the United 
States. The Canadian marginal rates shown exclude the old-age and 
security tax, and the United States rates are shown separately for a 
single person, a head of household, and a married couple filing a joint 
return. The beginning marginal rate in Canada in 1953 will be 17 
percent as contrasted to 22.2 percent in the United States, or the 
Canadian rate will be 5.2 percentage points below that of the United 
States. The top rate in Canada of 86 percent will be 6 percentage 
points below the 92 percent top rate in the United States. The margi- 
nal rates applicable to single persons in the United States are in all 
brackets above those applicable in Canada; the rates applicable to 
heads of households in the United States are above those in Canada 
except in the income brackets from $6,000 to $20,000; and the rates 
applicable to married couples filing joint returns in United States are 
above those rates applicable in Canada except in the income brackets 
from $4,000 to $32,000, from $35,000 to $40,000, and from $75,000 to 
$76,000. 



20 



SUMMARY OF THE BUDGET OF CANADA 



Table 9. — Comparison of the proposed marginal rates of individual income tax 
{excluding old age security tax i) in the Government of Canada for 1953 with those 
presently imposed by the Federal Government in United States 



Taxable income ^ 



$0 to $1,000 

$1,000 to $2,000 

$2,000 to $4,000 

$4,000 to $6,000 

$6,000 to $8,000 

$8,000 to $10,000 

$10,000 to $1 2,000- _- 
$12,000 to $14,000-.- 
$14,000 to $15,000.-. 
$15,000 to $16,000_-- 
$16,000 to $18,000--. 
$18,000 to $20,000.-. 
$20,000 to $22,000--. 
$22,000 to $24,000-.- 
$24,000 to $25,000... 
$25,000 to $26,000- _. 
$26,000 to $28,000. _- 
$28,000 to $32,000.-. 
$32,000 to $35,000--- 
$35,000 to $36,000--. 
$33,000 to $38,000.-- 
£33,000 to $40,000--- 
$43,000 to $44,000--- 
$44,000 to $50,000--. 
$50,000 to $52,000--. 
$52,000 to $60,000- -_ 
$60,000 to $64,000- -_ 
$64,000 to $70,000--. 
$70,000 to $75,000--- 
$75,000 to $76,000--- 
$76,000 to $80,000--. 
$80,000 to $88,000--- 
$88,000 to $90,000--- 
$90,000 to $100,000-- 
$100,000 to $120,000. 
$120,000 to $140,000. 
$140,000 to $150,000- 
$150,000 to $160,000- 
$160,000 to $180,000- 
$180,000 to $200,000. 
$200,000 to $250,000- 
$250,000 to $300,000. 
$300,000 to $400,000. 
$400,000 and over__. 



Canada 3 



Percent 



17 
19 
22 
25 
30 
35 
40 
45 
45 
50 
50 
50 
50 
50 
50 
55 
55 
55 
55 
60 
60 
60 
60 
60 
65 
65 
65 
65 
65 
70 
70 
70 
70 
70 
75 
75 
75 
80 
80 
80 
80 
86 
86 
86 



United States 



Single person 



Percent 
22. 2 
22. 2 
24. 6 
29 
34 
38 
42 
48 
53 
53 
56 
59 
62 
66 
66 
66 
67 
67 
68 
68 
68 
72 
72 
75 
77 
77 
80 
80 
83 
83 
83 
85 
85 
88 
90 
90 
90 
91 
91 
91 
92 
92 
92 
92 



Head of 
housebold 



Percent 
22. 2 

22. 2 

23. 4 
27 
29 
34 
35 
41 

4:4: 

44 

47 
48 
52 
54 
57 
57 
57 
60 
63 
63 
63 
66 
66 
71 
72 
72 
73 
73 
77 
77 
77 
79 
79 
81 
85 
85 
85 



91 
91 
92 
92 



Married 
couple filing 
a joint return 



Percent 
22.2 
22.2 
22. 2 
24. 6 
24. 6 
29 
29 
34 
34 
34 
38 
38 
42 
42 
48 
48 
48 
53 
56 
56 
59 
59 
62 
66 
66 
67 
67 
68 
68 
68 
72 
72 
75 
75 
77 
80 
83 
83 
85 
88 
90 
90 
91 
92 



1 The old age security tax in Canada in 1952 is 1 percent with a maximum of $30, and in 1953 is 2 percent 

with a maximum of $60. 

2 Income after deductions and exemptions. 

3 Rates shown are thoie for earned income. 

In view of tlie fact that the Canadian Provinces do not levy indi- 
vidual income taxes, the previous tables do not present an accurate 
comparison of the tax burdens in Canada and in United States in the 
case of persons living in States also imposing an income tax. For that 
reason table 10 is inserted comparing the income tax burdens on 
individuals under the proposed rates in Canada for 1953 and sub- 
sequent years with those presently imposed by the Federal Govern- 
ment in the United States and selected States. 



SUMMARY OF THE BUDGET OF CANADA 



21 



Table 10. — Individual income-tax burdens proposed in the financial statement for 
the Government of Canada {excluding the old-age security tax) and under the com- 
bined existing United States Federal and State income-tax lairs in selected States 

SINGLE PERSON— NO DEPENDENTS 



Net income (after deduc- 
tions but before exemp- 
tions)' 



$600 

$800 

$1,000 

$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000... 
$15,000. - - 
$20,000.-- 
$25,000-.. 
$50,000--- 
$100,000.. 
$500,000-. 
$1,000,000. 



Canada (1953 
rates) a 



United States 

and New 

York 



United States 
and Cali- 
fornia 



United States 
and Virginia 



United States 

and North 

Carolina 



$170 

360 

580 

800 

1,600 

2,250 

4,300 

6,750 

9,250 

24, 354 

60, 004 

408, 344 

858, 344 



89 
329 

587 

860 

1, 160 

2,226 

2,940 

5,290 

8, 161 

11, 378 

29, 182 

70, 409 

438, 661 

3 887, 525 



$44 

89 

311 

552 

808 

1,082 

2,062 

2,796 

5,081 

7, 934 

11, 161 

28, 999 

70, 304 

438, 494 

3 887, 096 



$44 

89 

331 

582 

848 

1, 142 

2,212 

2,926 

5,244 

8,098 

11,304 

29, 046 

70, 266 

438, 150 

3 885, 978 



$44 

89 

341 

602 

888 

1, 192 

2,292 

2,988 

5,343 

8,217 

11,436 

29, 269 

70, 493 

438, 941 

3 888, 365 



MARRIED COUPLE— 2 DEPENDENTS OF FAMILY ALLOWANCE AGE < 



$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000... 
$15,000... 
$20,000... 
$25,000... 
$50,000-.. 
$100,000.. 
$500,000-. 
$1,000,000 



-$144 

-25 

159 

370 

1,081 

1,666 

3,571 

5,956 

8,456 

23, 430 

58, 950 

407, 082 

857, 082 









B133 




368 




614 


1 


415 


1 


940 


3 


574 


5 


513 


7 


666 


22, 


012 


57, 


499 


413, 


709 


876, 


229 







$133 1 




355 




584 


1, 


319 


1, 


822 


3, 


349 


5, 


203 


7, 


314 


21, 


765 


57, 


280 


413, 


543 


875, 


943 







$145 1 




387 




629 


1, 


432 


1, 


962 


3, 


566 


5, 


465 


7, 


584 


21, 


853 


57, 


220 


413, 


204 


875, 


204 



$145 

397 

653 

1,492 

2,018 

3,666 

5,619 

7,786 

22, 141 

57, 682 

413, 992 

876, 792 



MARRIED COUPLE— 2 DEPENDENTS NOT ELIGIBLE FOR FAMILY ALLOWANCE 



$2,000 

$3,000 

$4,000 

$5,000 

$8,000 

$10,000-.. 
$15,000. _- 
$20,000... 
$25,000--. 
$50,000... 
$100,000.. 
$500,000.- 
$1,000,000. 









$34 




208 




404 


1, 


100 


1, 


660 


3, 


490 


5, 


850 


8. 


350 


23, 


258 


58, 


728 


406, 


780 


856, 


780 



$133 

368 

614 

1,415 

1,940 

3,574 

5,513 

7,666 

22, 012 

57, 499 

413, 709 

876, 229 









$133 




355 




584 


1 


319 


1 


822 


3 


349 


5 


203 


7 


314 


21 


765 


57 


280 


413 


543 


875, 


943 





$145 


387 


629 


1,432 


1,962 


3,566 


5,465 


7,584 


.21, 843 


57, 220 


413, 204 


875, 204 



$145 
397 
653 
492 
018 
666 
619 
786 
141 



57, 682 
413, 992 
876, 792 



1 Under $10,000 assumed to be the same for both Federal and State tax purposes. For classes $10,000 and 
over the net income for State tax purposes is that shown with the Federal tax being computed on the net 
income less State tax paid. Income and tax burdens for Canada are in Canadian dollars, and for United 
States and selected States are in United States dollars. 

2 Assumes all income up to $30,000 is earned and income over $30,000 is investment income. No account 
has been taken of the 10 percent credit on dividends received from Canadian corporations. 

3 Taking into account the Federal maximum effective rate limitation of 88 percent. 

< Takes into account family allowance of $72 per year for each child under 16 years of age. Minus signs 
Indicate that the family allowances exceed the income tax by the amounts shown. 



22 summary op the budget of canada 

(b) corporate taxes 

For 1951 corporations in Canada paid an income tax of 15 percent 
to the National Government on the first $10,000 of net income, and 
38 percent, plus a 20-percent defense surcharge on the tax otherwise 
due, on net income in excess of $10,000. These latter rates gave a 
com.bined rate of 45.6 percent on profits over $10,000. In addition, 
on January 1, 1952, corporations becam.e subject to a 2-percent tax 
to be set aside for the old-age security program. This liability arose 
from, the enactm.ent of the Old Age Security Act in 1951. Thus, 
Canadian corpcrations in 1952 before the enactm.ent of any legislation 
arising from, tlu proposals in the financial statem.ent would have been 
liable to a 17-percent tax of the first $10,000 of their incom.e and a tax 
of 47.6 percent on incom.e in excess of $10,000. 

The corporate income tax in the eight Provinces with which the 
Government of Canada has tax agreements is 5 percent, and 7 percent 
in Ontario and Quebec. Thus, in 8 Provinces the com.bined National 
and Provincial income tax is 22 percent on the first $10,000 of net 
income, and 52.6 percent on the net income in excess of $10,000. In 
the remaining two Provinces the combined corporate income tax is 24 
percent on the first $10,000 of profits and 54.6 percent on any remain- 
ing profits. 

Mr. Abbott indicates that the 8 Provinces with which the Central 
Government has tax agreements will be asked to drop their corporate 
income tax of 5 percent, and that the National Government will in- 
crease its corporate income tax rates on the first $10,000 of net income 
by 5 percentage points, and on income over $10,000, bv 4.4 percentage 
points. The Central Government's rate on the first $10,000 of 
profits will be raised from 17 percent to 22 percent, or if the old-age- 
security tax is omitted, from 15 percent to 20 percent; for income in 
excess of $10,000, the tax rate will be raised from 47.6 percent to 52 
percent, or from 45.6 percent to 50 percent if the old-age-security tax 
is omitted. In the case of corporations in Ontario and Quebec a 5- 
percent tax credit is to be given against the National Government's 
tax. The additional amount collected by the Central Government as 
a result of absorbing the Provincial corporate incom.e taxes is expected 
to be about $35 million on a full year basis, and this amount will be 
added to the payments made to the Provinces. 

The over-all effect of the corporate rate change will actually be a 
slight loss in funds available for the general expenditures of the Na- 
tional Government, since the combined tax rate (including the old-age- 
security tax) on income in excess of $10,000 is decreased from 52.6 
percent to 52 percent in the case of the eight Provinces with tax 
agreements, and from 54.6 percent to 54 percent in the case of Ontario 
and Quebec. Table 11 compares the corporate income tax effective 
rates in Canada Mnder prior law with those proposed in the financial 
statement. The financial statement indicates that — 

This change will be essentially one of form rather than substance, and is 
designated to simplify the administrative procedures. '^ 

^ House of Commons Debates, op. cit., p. 1252. 



SUMMARY OF THE BUDGET OF CANADA 



23 



Table 11. — Comparison of corporate income tax effective rates in Canada under 
existing law ivith those proposed in the financial statement 





Existing law for 1952 and subsequent years 


National Government pro- 
posal for 1952 and subse- 
quent years - 


Net income 


National Government tax 
rate 


National and Provincial 
Governments ' 


Exclud- 
ing 
old-age 
security 
tax 


Old-age 

security 

tax 






Exclud- 
ing 
old-age 
security- 
tax 


Old-age 

security 

tax 


Total 


Exclud- 
ing 
old-age 
security 
tax 


Old-age 

security 

tax 


Total 


Total 


.$5,000 


Percent 
15.0 
15.0 
25.2 
30.3 
33.4 
39.5 
42.5 
45.0 
45.3 
45.5 


Percent 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 


Percent 
17.0 
17.0 
27.2 
32.3 
35.4 
41.5 
44.5 
47.0 
47.3 
47.5 


Percent 
20.0 
20.0 
30.2 
35.3 
38.4 
44.5 
47.5 
50.0 
50.3 
50.5 


Percent 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 


Percent 
22.0 
22.0 
32.2 
37.3 
40.4 
46.5 
49.5 
52.0 
52.3 
52.5 


Percent 
20.0 
20.0 
30.0 
35.0 
38.0 
44.0 
47.0 
49.4 
49.7 
49.9 


Percent 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 
2.0 


Percent 
22 


•$10,000 


22 


$15,000 


32.0 


$20,000 


37 


$25,000 


40.0 


$50,000 


46.0 


$100,000 


49.0 


$500,000 


51.4 


$1,000,000 

$5,000,000 


51.7 
51.9 



1 An additional 2 percent corporate income tax is imposed by the Provinces of Quebec and Ontario. 

2 For 1952 and subsequent years ttiere is to be no Provincial corporate income taxes in the case of the eight 
Provinces with which the National Government has tax agreements. However, the revenue derived by 
the National Government from 5 percentage points of the corporate tax will be turned over to these Prov- 
inces. In the case of corporations in Ontario and Quebec where 7 percent corporate income taxes are 
imposed, the National Government will allow a tax credit equal to 5 percentage points. 

In his discussion of corporate income-tax rates, Mr. Abbott also had 
this general comment to make with respect to the present level of 
corporate income taxes: 

Quite frankly, I am concerned that conditions make it necessary to maintain in 
our tax structure rates as high as this on business profits. My main concern is 
not with the current year or even possibly with next year. The ill eflfects of too 
high taxes can perhaps be endured for a year or two. But as I said last year, 
excessive rates of tax on corporate incomes if long maintained can do grave damage 
to the economy as a whole, and I say quite candidly that if I had more leeway for 
tax abatement it is to income taxes, both corporate and personal, that I would 
give first consideration.'^ 

The finance statement indicates that two other important changes 
are also to be made in the corporate tax structure. These involve the 
tax treatment accorded certain public utility companies and Govern- 
ment corporations. Public utilitj^ companies whose main business is 
"the distribution to, or generation for distribution to, the public of 
electrical energy, gas or steam"^'* will be entitled to a deduction which 
will have the effect of reducing their income tax from a rate of 50 
percent to a rate of 43 percent. This excludes the 2 percent old age 
security tax which will raise the maximum over-all tax rate for these 
public utilities from 43 percent to 45 percent. This special tax 
treatment is to be made available to these public utilities only on that 
part of their taxable income which is derived from the distribution or 
generation of electrical energy, gas or steam. Moreover, the formula 

13 Ibid., p. 1252. 
» Ibid., p. 1253. 



24 SUMMARY OF THE BUDGET OF CANADA 

will afford relief only as long as the regular corporate rate remains at 
a high level. Under this formula the amount of relief will decrease as 
the corporate rate is lowered, and once the corporate rate, exclusive of 
the old age security tax, reaches 43 percent, the formula will no longer 
provide any special relief. The following quotations from the financial 
statement indicate Mr. Abbott's reasons for providing the special tax 
treatment. 

The House will recall that in my budget speech a year ago, I expressed special 
concern over the effect of our present high corporate tax rate on certain public 
utility companies which are forced by the nature of their business and their fran- 
chises to raise large amounts of capital to finance expansion of services required 
to be performed for the public, and which because of public control of rates are 
allowed to earn only a modest return on their capital. * * * (This is the) 
group of companies which for a variety of reasons finds the greatest difficulty in 
securing adequate income to attract the heavy volume of capital required to keep 
pace with public demand. '^ 

In Canada, as in the United States, "crown corporations" or Govern- 
ment corporations have been entirely exempt from income tax. In 
Canada, in the future, crown corporations of the Central Government 
which are ' 'proprietary^" in character will pay corporate income tax 
to the Central Government in the same manner as any privately 
owned corporation. "Proprietarj^" is defined here as meaning com- 
panies which are carrying on business operations similar to, and in 
competition with, private business. The Financial Administration 
Act of December 21, 1952,^^ lists the following proprietary corporations : 
Canadian Broadcasting Corporation, Canadian Farm Loan Board, 
Canadian National (West Indies) Steamships Limited, Canadian 
Overseas Telecommunications Corporation, Central Mortgage and 
Housing Corporation, Eldorado Mining and Kefining (1944) Limited, 
Exports Credits Insurance Corporation, National Railways, Northern 
Transportation Company (1947) Limited, Northwest Territories 
Power Commission, Polymer Corporation Limited, and Trans-Canada 
Air Lines. 

Mr. Abbott gives the following explanation for this change : 

One desirable result of this proposed action will be to make the financial state- 
ments of these crown companies more comparable with private industry, and make 
it easier to assess the relative efficiency of their operations. I do not expect this 
change to have appreciable net revenue effects. It will increase our tax receipts 
and reduce our nontax revenue. All crown company profits eventually find 
their way into the treasury, and many of them already remit all or the greater 
part of their profits year by year." 

In the case of the extractive industries, one more year is added to the 
period in which certain special tax benefits are made available to these 
industries. Prior to World War II the deduction of exploration 
expenses was limited to expenses incurred for the extension of a known 
body of ore or oil structure. It was not allowed when exploration was 
"off property." During the war the deduction was extended to "off 
property" exploration expenses and since World War II the applica- 
tion of this provision has been continued to include "off property" 
expenditures made through 1954.^^ Also at the present time new 
mines coming into production tlirough 1954 are allowed an exemption 
from income tax during the first 3 years of operation. The application 

15 Ibid., p. 1253. 

16 Statutes of Canada, 2d Session, Ch. 12, Schedule D. 
1' House of Commons Debates, op. cit., p. 1253. 

1' See Taxation in Canada, op. cit., p. 70, for an explanation of the "ofl property" exploration o-xpense 
deduction. 



SUMMARY OF THE BUDGET OF CANADA 25 

of both of these provisions is extended to include events occurring in 
1955. 

Last year the right to deduct depreciation (which is not a statutory 
right but is allowed by regulations) on newly acquhed capital assets 
was deferred for a period of 4 years except when the assets are acquired 
(a) for use by certain public utilities, for gas- and oil-well operations, 
for lumbering, or for patents and franchises; or (6) for the use by 
individuals in farming, fishing, or professional service; or (c) where 
the immediate depreciation is authorized by the Minister of Trade 
and Commerce. The authorizations referred to are made where the 
assets are acquired (a) for defense purposes; (b) for farming, fishing, 
mining, petroleum, lumber, and pulp and paper operations, or (c) for 
direct use in a transportation or communication business. Newly 
acquired assets which do not fall m any of these categories are depre- 
ciated over the normal period, but the deduction does not begin until 
4 years after acquisition. Mr. Abbott indicated that no changes in 
the principle of these regulations are presently contemplated, although 
he stated that he dislikes regulations of this type and that he will be 
glad to modif}" or withdraw them when the proper time comes. He 
indicates that the regulations are being continued because they are 
playing an important part in restraining capital investment which is 
of a nonessential character, and in directing investment which is 
made, toward essential ends. 

The adjustments in the corporate income tax rate are expected to 
increase revenues of the Governm^ent of Canada in the fiscal year 
ending March 31, 1953, by $13 million, and in a full year of operation, 
by $17 m^illion. However, if the increase in revenue attributable to 
the incorporation in the national corporate income tax of the 5 per- 
cent Provincial corporate income taxes (which will also increase 
expenditures by a like am^ount) is omitted, the effect of the corporate 
tax adjustment of six-tenths of one percentage point is a $12 m.illion 
decrease in revenues in the fiscal year 1953, and an $18 m.illion 
decrease in a full year of operation. 

Table 12 compares the proposed corporate income tax effective rates 
for Canada with those presently imposed in the United States by the 
Federal Government and selected States. For the United States, the 
combined Federal and State taxes are used in this comparison since 
Canada, with the exception of Ontario and Quebec, is to have no 
Provincial corporate income taxes. The effective rates shown for 
Canada include the 2 percentage points which are to be set aside in 
a separate fund for old-age security purposes, although the rates 
shown for the United States do not include the em.ployers' payroll 
tax for old-age and survivors insurance. The payroll tax in the 
United States is an excise tax which can be treated in the same 
manner as other business costs and bears no relationship to income. 
The Canadian old-age tax, on the other hand, is a levy on net incom_e. 
Two other factors should also be kept in mind in com.paring the 
effective rates shown for the United States and Canada: The United 
States imposes a 30 percent excess profits tax in addition to the cor- 
porate incom.e tax, while Canada imposes no such tax, and Canada 
allows stockholders to take a tax credit equal to 10 percent of the 
dividends received for the tax paid by the corporation, while the 
United States allows no such tax credit. An examination of table 
12 reveals that the effective rates imposed on corporations in Canada 



26 



SUMMARY OF THE BUDGET OF CANADA 



are below those imposed by the United States Federal Government 
alone in the case of incomes of $10,000 or less, and above the United 
States rates in practically all of the remaining income brackets up to 
an income level of $5,000,000. Canada's lower initial rate, 22 per- 
cent, as against 30 percent in the United States, accounts for its 
lower rate on small incomes, but the fact that this special rate applies 
only to the first $10,000 of income in Canada, while applying to the 
first $25,000 of income in the United States, results in a higher 
Canadian effective rate in Canada for corporations with larger 
incom.es. When State taxes are also added to the Federal income 
tax in the United States, the advantage which corporations with 
incom.es between $15,000 and $100,000 have over those in Canada is 
decreased considerably and in some cases is eliminated. 



Table 12. — Comparison of the proposed Canadian corporate income tax effective 
rates with those presently imposed in the United States by the Federal Government 
and selected States 



Net income ' 



$5,000 

$10,000___ 
$15,000- _- 
$20,000_-_ 
$25,000___ 
$50,000_-- 
$100,0fl0__ 
$500,000_- 
$1,000,000 
$5,000,000 



Canada 2 



Percent 
22. 
22. 
32. 
37. 
40.0 
46. 
49. 
51. 4 
51. 7 
51. 9 



Federal 
Govern- 
ment of 
United 

States 



Percent 
30. 
30. 
30.0 
30.0 
30. 
41. 
46. 5 

50. 9 

51. 5 
51. 9 



United 

States 

and 

New Yoric 



Percent 
33. 9 
33. 9 
33. 9 
33. 9 
33.9 
43. 6 
49. 1 

53. 5 

54. 1 
54. 5 



United 

States 

and 

California 



Percent 
32. 8 
32. 8 
32. 8 
32. 8 
32. 8 
42. 9 
48. 4 

52. 8 

53. 4 
53. 8 



United 

States 

and 

North 

Carolina 



Percent 
34. 2 
34. 2 
34. 2 
34. 2 
34. 2 
43. 9 
49. 4 

53. 8 

54. 3 
54. 8 



United 

States 

and 

Virginia 



Percent 
33. 5 
33. 5 
33. 5 
33. 5 
33.5 
43. 4 
48. 9 
53. 3 
53. 9 
54.3 



1 In computing the combined Federal and State tax in United States the net income shown is that for 
State tax purposes and the net income for Federal tax purposes is that shown less the State corporate tax. 

2 Includes a 2 percentage point tax which is set aside in a separate fund for old-age security but the 
United States tax does not include the pay-roll tax for old-age and survivors' insurance. In Ontario and 
Quebec the combined National and Provincial corporate income taxes is 2 percentage points higher than 
that shown. 

(C) SALES TAX 

Canada has long used a manufacturers' sales tax as a major source 
of national revenue. The rate of this tax last year was raised from 8 
percent to 10 percent effective April 11, 1951. Later in 1951, the 
Old Age Security Act provided that the revenue derived from these 
two additional percentage points was to be set aside for old-age secu- 
rity benefits and not appear as general budgetary revenues. 

Only minor changes are made in the sales tax this year. The 
exemptions already provided for most foods are extended to include 
drinks prepared from milk or eggs, preserved fruits, and cooking oils 
and salad oils, but not mayonnaise or salad dressing. The exemptions 
presently provided for business-cost items are extended to include bail- 
ing wire used for bailing farm produce, steel pens for farm animals, 
preservatives for use exclusively in treating nets, ropes, and lines used 
in the fishing industry, clays and earth for use exclusively as filtering 



SUMMARY OF THE BUDGET OF CANADA 27 

materials in the refining of petroleum oils, and certain items defined 
in the tariff acts. These items include machinery used for logging 
operations, certain railroad repair equipment, and certain surgical 
equipment. 

(d) excise taxes 

The National Canadian Government also imposes a series of specific 
manufacturers' excise taxes which are in addition to, and not a 
substitute for, the general sales tax. These excises include taxes on 
tobacco and alcoholic beverages, which are specific, and ad valorem 
excises which in general are imposed at one of three rates: 15 percent, 
25 percent, or 30 percent. The combined excise tax and duty on 
cigarettes last year was increased from 20 cents to 23 cents per stand- 
ard pack but no change was made at that time in the excises on alco- 
holic beverages. The principal items taxable at the 15 percent rate 
are stoves, washing machines, and electric refrigerators. These items 
were made taxable in 1951. The 15 percent tax rate also applies to 
candies and chewing gum, which were made subject to excise tax in 
1950. The 25 percent tax rate applies to a wide range of items similar 
in character to the manufacturers' and retail excise taxes imposed by 
the Federal Government in the United States. Prior to September 
1950 these items were taxed at a rate of 10 percent; at that time the 
rate was raised to 15 percent; and in April 1951 the rate was raised 
to 25 percent. The 30 percent rate category includes only soft drinks, 
although it formerly also applied to candies and chewing gum. This 
tax was first imposed in September 1950. 

Effective as of April 9, 1952, the items previously taxable at a 25 per- 
cent rate are now taxed at 15 percent, the 30 percent tax rate apply- 
ing to soft drinks is reduced to 15 percent, and the 15 percent rate 
applicable to stoves, washing machines, and electric refrigerators is 
eliminated. However, the 15 percent tax on candies and chewing 
gum is retained. The combined excise tax and duty on cigarettes is 
reduced from 23 cents per standard pack to 20 cents per standard 
pack, and that on raw leaf tobacco is reduced from 40 cents per pound 
to 28 cents per pound. Information as to the old and new excise 
tax rates is set out in greater detail in table 13. 



28 SUMMARY OF THE BUDGET OF CANADA 

Table 13. — Canadian excise taxes affected by the budget 'proposals 

I. Items previously taxable at a 25-percent rate, now taxed at a 15-percent rate: 

(1) Toilet preparations, including shaving cream and shaving soap, 

(2) Luggage, handbags, wallets, toilet cases, trunks, golf and sport 

bags, and similar items. 

(3) Jewelry, watches, clocks, and similar items. 

(4) Furs. 

(5) Cameras, film, and projectors. 

(6) Desk accessories and sets, pens, propelling and ink pencils. 

(7) Smokers' accessories, including lighters, pipes, cigar and cigarette 

holders, and ashtrays. 

(8) Golf clubs and golf balls. 

(9) Firearms, parts, and ammunition not used for police or military 

purposes. 

(10) Electrical appliances and equipment adapted to household use, 

viz, blankets; chafing dishes; coffee makers; curling irons or 
tongs; dishwashers; food or drink mixers; food choppers and 
grinders; floor waxers and polishers; garbage-disposal units; 
hair dryers; irons and ironers; juice extractors; kettles; portable 
humidifiers; razors and shavers; toasters of all kinds; vacuum 
cleaners and attachments; and waffle irons; but not including 
stoves, washing machines, or refrigerators. 

(11) Automobiles. 

(12) Motorcycles and other 2- or 3-wheeled motor-driven vehicles 

including motors for attachment to bicycles. 

(13) Radios, phonographs, and television sets. 

(14) Fishing rods and fishing reels. 

(15) Tires and tubes. 

(16) Matches. 

(17) Coin-operated machines, including slot machines. 

(18) China, earthenware, glassware, pew^terware, porcelain articles, 

potteryware, marble articles, and stoneware. 
II. Items previouslv taxable at a 30-percent rate, now taxed at a 15-percent rate : i 
(1) Soft drinks. 

III. Items previously taxable at a 15-percent rate, now tax-free ".^ 

(1) Stoves, hot plates, grills, and other applicances when adapted 

wholly or in part for cooking and when designed for using other 
than solid fuels. 

(2) Washing machines operated by electric or other power. 

(3) Electric, gas, or kerosene refrigerators and freezing equipment and 

complete parts therefor including coils, condensing or compressor 
units, motors, cabinets, boxes, evaporators, and expansion valves. 

IV. Excise and duty on tobacco:^ 

(1) Cigarettes previously taxed at 23 cents per pack, now taxed at 20 

cents per pack. 

(2) Raw leaf tobacco previously taxed at 40 cents per pound, now taxed 

at 28 cents per pound. 

1 Dry-mix preparations for household use are added to the tax base and are to be taxed at a IS-percent rate. 
The tax on carbonic acid gas is reduced from 50 cents to 25 cents per pound. 

2 Candy, chocolate, chewing gum and confectionery that may be classed as candy or a substitute for candy 
are also presently taxed at a 15-percent rate, and are continued at the same rate under the budget proposals. 

3 Theexcise tax and duty are imoosed only on products of domestic manufacture. Imports are subject to 
the tarifl which compensates for the excise tax and duty and also makes some allowance for the protection of 
domestic manufacturers. A minor change not listed was also made by the budget proposals in the excise 
tax on manufactured tobacco. 

The Federal Government in the United States taxes most of the 
items subject to tax in Canada. However, in general, Canada's excise 
tax rates have been above those of the United States. The disparity 
in rates is greater than is evident from the selective excises alone since 
in Canada the items subject to excise tax are also subject to the 10- 
percent manufacturers' sales tax. AVhile the decreases proposed in 
the current financial statement reduce the difference between the 
Canadian excises and those imposed by the Federal Government in 
the United States, the Canadian excise taxes in general still appear 
to be somewhat the higher. For ease in making comparisons with 
United States rates, the items subject to Canadian excise taxes which 



SUMMARY OF THE BUDGET OF CANADA 



29 



are shown in table 13 have been hsted according to the rates imposed 
in the United States. The first four items shown in table 13 under 
No. I, which in Canada are taxed at a 15 percent excise tax rate (in 
addition to a 10-percent sales tax rate), are in general taxed at 20 
percent in the United States, although the bases of the taxes are not 
identical. However, in the United States these taxes are levied on 
the retail price rather than the manufacturers' price, which makes 
the tax pa3^able considerably higher than is true where the tax is 
imposed on the manufacturers' price. Cameras and film in item 5 
in No. I of table 13 are taxed at a 20-percent rate in the United 
States and projectors at a 10-percent rate, and in this case the taxes 
in the United States are also based on the manufacturers' price. 
Items 6 through 8, under No. I in table 13, to the extent taxed in the 
United States, are taxed at 15 percent of the manufacturers' price. 
Fire arms and ammunition in the United States are taxed at 11 per- 
cent of the manufacturers' price. Items 10 through 14, under No. I 
in table 13, to the extent taxed by the United States, are taxed at a 
rate of 10 percent of the manufacturers' price. Items 15 through 17 
are also taxed in the United States, but in these cases the taxes are 
not ad valorem rates which make comparisons with the Canadian 
rates difficult. Item 18, china, earthenware, glassware, and so forth, 
is not subject to excise tax by the Federal Government of the United 
States. This is also true of soft drinks under No. II in table 13, 
item 2 in No. Ill in table 13, and candies and chewing gum. Stoves 
and refrigerators are taxed in the United States at a rate of 10 percent 
of the manufacturers' price. 

In the case of cigarettes, the new Canadian tax i", 20 cents pei' 
standard pack. This can be com_pared to the 8 cents per pack im.posed 
by the Federal Governm.ent in the United States. The current rate on 
distilled spirits in Canada, which is not changed this year, is $12 per 
proof gallon. This is the equivalent of a rate of $8.76 on the type of 
proof gallon used in the United States. The Federal tax in the United 
States per proof gallon is $10.50. In the case of beer in Canada, the 
tax is imposed on the malt, instead of the beverage, and amounts to 
21 cents per pound. This is the equivalent of a tax of 42 cents to 
45 cents a gallon on beer, or in terms of United States gallons, amounts 
to 35 cents to 37K cents per gallon. The Federal tax in the United 
States is $9 per barrel, which is the equivalent of 29 cents per gallon. 

The decreases made by Canada in excise taxes are estimated to 
amount to $88 million in the fiscal year 1953, and $97 million in a year 
of full operation. The breakdown of this revenue loss is shown 
as follows: 

[In millions of dollars] 



Excises reduced from 25 to 15 percent 

Reduction of excise on soft drinks from 30 to 15 per- 
cent (B/ 

Repeal of 15-percent tax on stoves, washing machines 
and refrigerators 

Reduction from 23 to 20 cents in excises on ciga- 
rettes 

Total 




Full year of 
operation 



64 
11 
11 
11 



97 



30 



SUMMARY OF THE BUDGET OF CANADA 



V. Historical Record of Receipts, Expenditures, and Debt 

Tables 14, 15, 16, and 17 contain certain financial data for Canada 
in recent years. Table 14 shows total budgetary receipts and expend- 
itures of the National Government with the resulting surplus or deficit ; 
table 15, the National Government's receipts by major revenue 
sources; table 16, the National Government's outstanding debt; and 
table 17, the gross national product. 

Table 14. — Total net budgetary receipts, expenditures, and surplus (+) or 
deficit ( — ) in selected fiscal years of the Government of Canada 



[In millions of dollars] 






Fiscal year 


Receipts 


Expenditures 


Surplus (+) 
or deficit (-) 


1939 


502 
2,687 
3,013 
3,008 
2,872 
2,771 
2,580 
3, 113 
4,003 
2 4, 279 


553 

5,246 
5, 136 
2,634 
2, 196 
2, 176 
2,449 
2, 901 
3,647 
4,270 


— 51 


1945 


— 2, 558 


1946 - 


— 2, 123 


1947 


+ 374 


1948 _ . - _ 


+ 676 


1949 - 


+ 596 


1950 

1951 


+ 132 
+ 211 


19521 


+ 356 


19531 


+ 9 







1 As estimated in the financial statement. 

2 After proposed tax changes. 



SUMMARY OF THE BUDGET OF CANADA 



31 



Table 15. — Revenue received by the Government of Canada from various sources for 

the fiscal years 1945-53 

[In millions of dollars] 



Source of revenue 


1945 


1946 


1947 


1948 


1949 


1950 


1951 


1952 1 


1953 » 


Individual income tax. 

Corporation income tax 


796.4 
276.4 
465.8 
209.4 


719.9 
217.8 
494.2 
212.2 


724.7 
239.0 
448.7 
298.2 


695. 7 
364.1 
227.0 
372.3 


806.0 
492.0 
44.8 
377.3 


669. 5 

603.2 

-1.8 

-403.4 


713.9 

799.2 

10.1 

460.1 


1, 035. 5 

1,136.0 

2.2 

602.0 


1,312.0 
1,318.0 

(?) 

674.0 


Sales tax (net of refunds) -... 


Excises: 


73.9 
145.4 
269.6 


93.3 
168.5 
212.4 


100.2 
177.5 
202.1 


100.0 
170.7 
197.5 


103.2 
183.9 
ir9. 1 


109.2 
199. 5 
82.4 


131.6 
199.7 
139.3 


125.3 
212.0 
203.8 


(') 
(') 
(?) 


Tobacco products 

Another 




Total excises 


488.9 
3.4 


474.2 
2.8 


479.8 
3.0 


468.2 
3.0 


466.2 
2.7 


391.1 
2.5 


470.6 
2.9 


541.1 
3.0 


(?) 
(') 






Net receipts, excises _ _ 


485.5 

17.3 

115.1 

8.2 


471.4 

21.4 

128.9 

9.0 


476.8 

23.6 

237.4 

9.7 


465.2 

30.8 

293.0 

3.8 


463.5 

25.6 

223.0 

4.0 


388.6 

29.9 

225.9 

4.4 


467.7 

33.6 

295.7 

4.9 


538.1 

38.0 

353.0 

5.3 


492.0 
43 




370 


Another - -. 


5.0 






Total receipts from 


2, 374. 1 
532.7 


2, 274. 9 
810.8 


2, 457. 9 
580.2 


2, 452. 1 
419.7 


2, 436. 1 
335.3 


2, 323. 1 
257.0 


2, 785. 4 
327.2 


3,710.0 
314.1 


4,214.0 


Nontax revenue, special re- 


' 300.0 






Total revenue. . 


2, 906. 8 
219. 5 


3, 085. 7 
72.5 


3, 038. 1 
30.2 


2, 871. 7 


2, 771. 4 


2, 580. 1 


3, 112. 5 


4,024.1 


4,514.0 


Less income and excess- 
Less old-age security taxes 
on— 












19.0 


135.0 


















52.0 


Corporation income tax. 
















2.0 


48.0 


















Total net revenue 


2, 687. 3 


3,013.2 


3, 007. 9 


2, 871. 7 


2, 771. 4 


2, 580. 1 


3, 112. 5 


4, 003. 1 


4,279.0 



' Probable receipts. 

- Estimated, including effects of proposed budget tax changes. 

•' Not available. 

Note. — Figures are rounded and may not add to totals. 



32 SUMMARY OF THE BUDGET OF CANADA 

Table 16. — Net public debt of the Government of Canada 



Close of fiscal year — 


Total in millions 
of dollars 


Per capita 


1939 


3, 153 
11, 298 
13, 048 
11, 776 
11, 645 
11,433 
2 11,078 
2 11, 069 


$281 


1945 


934 


1947 - 


1, 039 


1949 - - - - - - - 


872 


1950 


844 


1951 


• 817 


1952 _ _ _ _ - 


1 780 


1953 


1769 







' Assuming a population of 14.0 million for 1951, 14.2 million for 1952, and 14.4 million for 1953. 
» Estimated. 

Table 17. — Gross national product of Canada at market prices for calendar years 

19U through 1950 

[In millions of dollars] 



Ygg^j.. Amount 

i944i 11,919 

19451 11,810 

19461 12,008 

19471 - 13,657 



Year — Continued Amount 

19481 15,613 

1949 16,462 

1950 18,122 

19512 21,241 



1 Excludes Newfoundland with gross national product of $175 million in 1948. 
* Preliminary. 

Source: The data for 1944 through 1947 were taken from National Accounts, Income, and Expenditure 
1942-49, published by the Dominion Bureau of Statistics and the data for 1948 through 1951 were taken from 
the white paper attached to the House of Commons Debates, Official Report, Tuesday, Apr. 8. 1952.